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Russia: Huge Foreign Investment Hinges On Reforms

Washington, 13 January 1997 (RFE/RL) - The head of the U.S. agency which provides insurance and some financing for American investors abroad says there is at least $30 billion in new investment just waiting to go into Russia, but that unless "important reforms" are undertaken quickly, the money will go elsewhere.

Ruth Harkin, president of the U.S. Overseas Private Investment Corporation (OPIC), says the necessary reforms in Russia "include tax reforms, enforcement of arbitral awards, production sharing agreements, and a bilateral investment treaty" between Russia and the United States.

She told an investors' conference in Boston last Friday that "these are not new issues, but I am afraid if they are not dealt with soon, many investors will go elsewhere in an increasingly competitive world economy."

Harkin's agency provided more than $1 billion in project financing and political risk insurance for American investment projects in Russia in 1996. She says that brought OPIC's total support for long-term investment in the country to more than $3 billion over the last three years.

At the moment, she says, U.S. companies have registered 318 new projects seeking OPIC insurance and/or financing, projects which she says could result in 30 billion in new investment in the country this year.

The figure dwarfs the foreign investment that has been coming into Russia in previous years. According to the United Nations' World Investment report, foreign direct investment in Russia from 1991 to 1995 totaled only around $4.5 billion.

Harkin arrives in Moscow Wednesday for a three-day visit designed to encourage the Russian government to adopt the reforms needed to draw this potential American investment.

She is scheduled for meetings with senior Russian government officials, including Presidential Chief of Staff Anatoly Chubais and First Deputy Prime Minister for Economic Affairs, Vladimir Potanin.

Harkin will also meet with Russian and U.S. business people who are members of the Russian-American Chamber of Commerce and she plans to visit a sausage and meat processing and packaging facility in the Moscow suburbs which was started with OPIC support.

American businesspeople and investors have been increasingly complaining that without adoption of more international standards in business, ranging from fair and equitable taxes to enforcement of contracts to clarification of property rights, Russia will not draw the foreign investment it could.

The managing director of the International Monetary Fund, Michel Camdessus, said last week that even the IMF had thought Russia could get its tax collection and budgetary systems into shape sooner.

Camdessus told the "Financial Times" newspaper: "No one measured the true depth of the collapse of all administrative structures, the decomposition of the state which accompanied the collapse of the communist system."

Several times in late 1996, the fund had to delay disbursement of $340 million monthly drawings on Russia's $1.1 billion, three-year loan with the IMF due to faltering tax collections. IMF officials say they have been working with Moscow to redesign a tax system that is fair and equitable, a prerequisite if the country hopes to bring tax revenues up to budget projections.